Monday, March 27, 2017

ALERT Trump is Going Full Keynesian

Earlier this month, New York Times Magazine contributor Robert Draper spoke to President Donald Trump by phone.

He has reported for the magazine on the conversation. Here's the key insight (my highlight):

When I spoke with Trump, I ventured that, based on available evidence, it seemed as though conservatives probably shouldn’t hold their breath for the next four years expecting entitlement reform. Trump’s reply was immediate. “I think you’re right,” he said. In fact, Trump seemed much less animated by the subject of budget cuts than the subject of spending increases. “We’re also going to prime the pump,” he said. “You know what I mean by ‘prime the pump’? In order to get this” — the economy — “going, and going big league, and having the jobs coming in and the taxes that will be cut very substantially and the regulations that’ll be going, we’re going to have to prime the pump to some extent. In other words: Spend money to make a lot more money in the future. And that’ll happen.” A clearer elucidation of Keynesian liberalism could not have been delivered by Obama.

"Priming the pump" is one of the scariest economic programs you can hear promoted by a president. It is nothing but the promotion of rotund government expansionism justified by confused Keynesian theory.

Pump priming relates to the Keynesian economic theory, named after noted economist John Maynard Keynes, which states that government intervention within the economy, aimed at increasing aggregate demand, can result in a positive shift within the economy...

The phrase originated with President Hoover's creation of the Reconstruction Finance Corporation (RFC) in 1932, which was designed to make loans to banks and industry. This was taken one step further by 1933, when President Roosevelt felt that pump-priming would be the only way for the economy to recover from the Great Depression. Through the RFC and other public works organizations, billions of dollars were spent priming the pump to encourage economic growth.

The phrase was rarely used in economic policy discussions after World War II, even though programs developed and used since then, such as unemployment insurance and tax cuts, may be considered forms of automatic pump primers. However, during the financial crisis of 2007/2008, the term came back into use, as interest rate reduction and infrastructure spending were considered the best path to economic recovery, along with tax rebates issued as part of the Economic Stimulus Act of 2008.

And thus another problem for Trump supporters who view him as somehow different from typical big government politicians. Trump is not different. No shrinkage of the government role in the economy is going to occur when a president is talking about priming the pump---enthusiastically talking about priming the pump.